Binance, the world’s largest cryptocurrency exchange, has had a challenging year with legal battles and regulatory challenges, but continues to make progress in expanding its global presence. In a recent development, Binance is reportedly discussing options for allowing select institutional clients to keep their trading collateral at a bank rather than on the exchange, potentially reducing counterparty risk.
The proposal for this new arrangement comes in response to growing concerns among institutional crypto traders, particularly after the sudden collapse of FTX last year, which led to significant losses for many. Cryptocurrency exchanges play several roles, including facilitating trades, holding assets, settling transactions, and offering credit, which heightens the risk of far-reaching consequences in case of an exchange’s failure.
According to a Bloomberg report, Binance has been engaging with institutional customers about utilizing bank deposits as collateral for both spot and derivatives margin trading. Two intermediaries, Swiss-based FlowBank and Liechtenstein-based Bank Frick, have been mentioned as potential candidates for this service. However, the discussions remain private and subject to change.
Under this proposed setup, clients’ cash held at a bank would be locked through a tri-party agreement, while the exchange would provide stablecoins as collateral for margin trading. Client cash deposits could potentially be invested in money-market funds, generating interest to offset the cost of borrowing crypto from Binance. However, it is worth noting that the arrangement is not finalized and may change.
Safe custody and segregation of client assets have become the focus in regulatory proposals across Asia and Europe, with major firms like Nasdaq Inc., Bank of New York Mellon Corp., and Fidelity Investments developing or offering crypto custody solutions for institutional investors.
Binance has seen a decline in market share in recent months following the discontinuation of its zero-fee promotion in March, as well as ongoing concerns related to the Commodity Futures Trading Commission’s lawsuit against the exchange. In response, Binance introduced a custody solution called Ceffu, allowing institutional clients to store their assets in a segregated cold wallet. A 2022 corporate filing revealed that Changpeng Zhao, the CEO of Binance, controlled 100% of the company managing Ceffu.
How this new arrangement potentially impacts Binance’s existing customers and overall market dominance remains to be seen. Still, it showcases the exchange’s commitment to addressing the concerns of its institutional clients while complying with evolving regulatory requirements.
Source: Coingape
